The further rise in world trade volumes in August was unsurprising given that there has been a strong recovery the demand for imported goods. Given the experience so far, we would expect world trade to continue holding up relatively well even if the new wave of lockdowns in Europe are severe enough to cause their overall economic recoveries to go into reverse.
- The further rise in world trade volumes in August was unsurprising given that there has been a strong recovery the demand for imported goods. Given the experience so far, we would expect world trade to continue holding up relatively well even if the new wave of lockdowns in Europe are severe enough to cause their overall economic recoveries to go into reverse.
- According to data released from the CPB Netherlands Bureau, world trade volumes rose by a further 2.5% in August. (See Chart 1.) While the rebound appears to be losing pace – volumes rose by 7.8% in June and 5% in July – August’s increase left trade volumes just 3.5% below their December 2019 level, up from almost 18% below its pre-virus level at its trough in May.
- The country breakdown for August showed that, except for parts of Asia, pretty much every region recorded a monthly rise in exports. (See Chart 2.) The largest increases were concentrated in advanced economies. But the big picture is that exports from DMs were still well below their pre-virus levels, while aggregate EM exports recovered in August.
- Initially, the recovery was supported by strong demand for COVID-related products such as medical equipment, PPE and electronics to aid in the shift to working from home. As a result, the countries where the bulk of these products are manufactured – including China and other Asian countries – led the recovery in trade. In China, for instance, the breakdown of the export data showed that these products accounted for around half of the overall rebound in exports there.
- But more recently, the recovery has broadened out with a wider variety of goods including those related to home improvement and recreational goods experiencing increased demand. Indeed, DM retail sales data show that aside from instore sales of things like PPE and other health goods, sales of household goods and electrical equipment were way above January levels in September. (See Chart 3.)
- The largest boost to DM retail sales has come from online sales. Indeed, non-store sales have surged and are now 20-40% above their pre-virus levels in most advanced economies. Admittedly, there are limited data on what exactly makes up these online purchases. But in the US, for instance, monthly consumption data suggest that the rise most likely includes greater spending on PCs, other IT equipment, furniture, and games. (See Chart 4, which breaks down the percentage-point contributions of each product type to the 5.3% rise in US goods consumption from January to August.)
- Importantly for world trade, these types of goods tend to be imported. Chart 5 shows what percentage of final manufactured goods consumed in DMs are imported. Electronic goods, electrical equipment, pharmaceuticals, and furniture are among the most heavily imported goods in advanced economies. Stronger demand for these goods provides a disproportionately large boost to world trade.
- Given that we expect these shifts in consumer spending to continue over the rest of this year, the recovery in trade looks set to continue. Timely data from Korea for the first twenty days of October showed that exports rose by about 6% y/y in working-day adjusted terms and are now at their highest level this year. (See Chart 6.) The breakdown showed that the improvement was driven by demand for electronic components. (See Chart 7.) Meanwhile, the Flash PMIs for October suggest that the new export orders component of the DM Manufacturing PMI edged up and is consistent with annual growth in exports in DMs pulling off a remarkable recovery into positive territory. (See Chart 8.)
- All told, while the broader economic outlook appears to be darkening in places suffering from a resurgence of the virus, the shift in consumer spending towards imported goods should mean that the damage to world trade continues to be less severe than in other parts of the economy. Indeed, we expect the recovery in trade to continue over the rest of the year.
Chart 1: CPB World Trade Volumes
Chart 2: CPB Country Export Volumes (% m/m, August)
Chart 3: Average Percentage Change in Real Retail Sales from January to August in 12 Adv. Economies
Chart 4: Breakdown of the Change in US Goods Consumption from January to August (%-points)
Chart 5: Imported Goods Consumption % of Total Goods Consumption in 22 Advanced Economies
Chart 6: Korea Exports (US$bn, working-day adjusted)
Chart 7: Korean Exports by Product
Chart 8: DM Mfg. PMI Export Orders & Real Exports
Sources: Refinitiv, IHS Markit, CEIC, WIOT, Capital Economics
Gabriella Dickens, Global Economist, email@example.com